The Seattle-based North Pacific fishing fleet is expected to get $1.6 billion in upgrades or rebuilding over the next decade, but in-state ship builders have been capturing only about a third of such business so far, and cheaper Gulf Coast competitors could eat their lunch as the stakes grow. Washington maritime industry leaders say bipartisan HB 1154 could help provide a net big enough for the state to harvest more of that economic growth.
Labor costs are 30 percent less for Gulf Coast builders and environmental regulations there seen as more lenient, giving that region a potential edge in bidding for the work, according to a 2016 economic analysis by the McDowell Group for the Port of Seattle and the Washington Maritime Federation (p. 53).
HB 1154 would reduce the business and occupation (B&O) or gross receipts tax rate for Washington manufacturers that build fishing vessels specifically for the fleet. The boat construction and sales would also be eligible for the state Multiple Activities Tax Credit (MATC). This year’s measure is the third attempt by its chief sponsor, State Rep. Gael Tarleton (D-36), to get the legislation signed into law. HB 2182 – proposing the same tax incentives – failed to pass during the last two legislative sessions.
Providing An Economic Boon For Shipbuilders
A former Port of Seattle Commission President, Tarleton is the vice chair of the House Technology and Economic Development Committee, where the bill received a warm welcome at a January 18 public hearing. The bill’s two cosponsors in that committee include Ranking Minority Member State Rep. Norma Smith (R-10), and State Rep. Sharon Tomiko Santos (D-37).
Regional port officials and boat builders testifying January 18 to legislators praised the bill as a way to strengthen the state’s competitiveness, and create high-paying jobs.
“We can’t miss this opportunity,” Keith Whittemore said. “The boats have to be built in the U.S…but they don’t have to be built in Washington.” Whittemore is the executive vice president of business development for Vigor Industrial Shipyards, a shipbuilding and repair company with 12 locations and 2,500 employees in the Pacific Northwest and Alaska.
Replacing Older Ships In Fishing Fleet
The North Pacific fishing fleet consists of 400-plus federally permitted vessels, more than 58 feet long. It is regulated by the North Pacific Fishery Management Council, and the Pacific Fishery Management Council, which restrict the number of boats allowed to fish 200 miles off the coasts of Washington, Alaska, Oregon, and California. Altogether, the fleet provides 15,000 jobs and $1 billion in annual wages.
However, the average fleet vessel is 40 years old, and many need technology upgrades or replacement. Over the past 15 years, construction of North Pacific fishing boats has occurred at a rate of one per year. The McDowell report projects the rate will triple between 2017 and 2022. The result is $1.6 billion worth of boat upgrade or construction projects. The study concluded that this “represents significant economic opportunity for the region.”
Tarleton: ‘Once In A Lifetime Opportunity’
Tarleton echoed this sentiment January 18, calling it a “once in a generation opportunity to be the leaders in rebuilding the national fishing fleet capacity.” HB 1154 would reduce the B&O tax rate for boat manufacturers from the current rate of 0.484 percent to 0.290 percent. Shipbuilders would also be eligible for the MATC, which helps businesses avoid paying the B&O tax more than once for the same product, if they manufacture and sell it in the state. These incentives would begin in July, 2017 and end in 2025.
Tarleton stressed that the bill only applies to boat builders rebuilding the North Pacific fishing fleet. Under HB 1154, “qualified vessels” must participate in federal fisheries under the jurisdiction of the Pacific or North Pacific Fishery Management Councils, or state-managed fisheries. “We don’t give out this preference just to build a new boat,” Tarleton said.
However, the incentives would put manufacturers such as Vigor Industrial in a stronger competitive position, said Whittemore. “We have people, we have the talent, we have the yards, we have the abilities, we have the subcontractors, we have the support, we have the resources,” he said. “What we need is the work.”
Competition From Gulf Coast Builders
“That all sounds easy, but there’s competition, and there’s competition from the Gulf,” Whittemore added. “They want these jobs. They want to keep their shipyards full.”
The McDowell report notes that labor costs in Florida, Alabama and Louisiana shipyards are about 30 percent less than in Washington; and that Washington shipyards see the size and scope of required environmental compliance here as a competitive cost burden, too.
Port of Seattle Commissioner John Creighton told legislators that if Washington captured only half of the coming $1.6 billion in shipbuilding activity, it would create 500-750 jobs. Absorbing the entire decade-long burst would add twice as many jobs, according to the 2016 analysis.
“We’d love to capture that work for the state of Washington,” Creighton said. However, “partnership with the state is critical” to make that happen, he added.
Those shipbuilding jobs also well, said Whittemore, noting that the median annual salaries for shipyard workers is $75,000, and $80,000 for fishing and seafood processing jobs. All are well above the state’s $56,000 median.
The McDowell Group study also highlighted the multiplier effect of shipbuilding activity. For every $1 million spent in Puget Sound on vessel construction, nine jobs and $600,000 in annual income are created in the region.
State Rep. Richard DeBolt (R-20) is the Assistant Ranking Minority Member on the Technology and Economic Development panel. He told Lens that HB 1154 “shows the strength of the industry” by the number of jobs it would create through tax incentives. There are “a lot of people that can take advantage of it,” he added.
The bill could clear Technology and Economic Development as soon as a January 24 executive session.
DeBolt said “I think it’s got a good shot this year.”